Does Financial Information Presentation Format Matter? Evidence from Research and Development Expense Reporting

Prof. Wei SUN
Associate Professor
China Agricultural University

Date: 07 December 2023 (Thursday)
Time: 2:30 pm to 4:00 pm
Venue: E22-G015
Host: Prof. Rubin HAO, Assistant Professor in Accounting
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This paper investigates the real and capital market effects of a mandatory change in the presentation format of research and development (R&D) expense. We utilize a natural experiment of China’s implementation of a new presentation format of corporate R&D expense that requires Chinese public firms to present their R&D expense on their income statements as a separate line item (income statement presentation), instead of as part of the general and administrative expenses supplemented by additional information in the notes to the financial statements (footnote presentation). We predict and find that firms report higher R&D expense in the income statement presentation regime. We further find that firms’ innovation efficiency decreases, and the positive valuation implication of reported R&D expense diminishes after the presentation format change. The evidence is consistent with firms’ increasing their reported R&D expense by (re)classifying some general and administrative expenses to R&D expense. These findings suggest that the R&D expense presentation format regulation, which aims to improve R&D information transparency, may have unintended consequences.


Prof. Wei Sun is an associate professor at College of Economics and Management, China Agricultural University. She received her B.S. in Management from Nankai University in 2009, M.Sc. in Finance from Lancaster University in 2010, M.Sc. in Economics from the Hong Kong University of Science and Technology in 2013, Ph.D. in Accounting from the University of Hong Kong in 2017, her research interest includes corporate finance and corporate disclosure. Her research papers have been published in Journal of Accounting Research etc.

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